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RBI May Cut Rates 50 bps in 2026 After 125 bps Easing in 2025: Report

A report by IIFL Capital states the Reserve Bank of India has room for a further 50 basis points rate cut in 2026, following substantial easing of 125 bps projected for 2025. This space for monetary easing exists because the gap between the repo rate and core CPI inflation remains elevated compared to historical averages. The report expects economic growth to accelerate, supported by continued deregulation, reforms, and the cumulative impact of rate cuts. It also forecasts a positive equity market outlook, with Nifty expected to deliver returns of around 15%.

Key Points: RBI Rate Cut Outlook: 50 bps in 2026 After 125 bps in 2025

  • Room for 50 bps RBI rate cut in 2026
  • 125 bps easing projected for 2025
  • Growth acceleration expected from reforms & easing
  • Nifty may deliver ~15% returns
3 min read

RBI has room for 50 bps rate cut in 2026 after 125 bps easing in 2025: Report

IIFL Capital report forecasts RBI rate cuts, growth acceleration, and equity market outlook for 2026. Analysis of repo rate, inflation, and reforms.

"There is room for more cuts (50bps), given that repo minus core inflation is well above its historical avg., and inflation is low - IIFL Capital Report"

New Delhi, January 6

The Reserve Bank of India still has room for a further 50 basis points cut in policy rates in 2026, following bumper rate cuts of 125 bps in 2025, according to a report by IIFL Capital.

The report highlighted that the gap between the repo rate and core CPI inflation remains elevated, providing space for additional monetary easing. The delta between the repo rate and core CPI is currently at 2.8 percentage points, compared to an average of 1.1 percentage points over the last seven years, indicating scope for further rate cuts in India.

It stated "There is room for more cuts (50bps), given that repo minus core inflation is well above its historical avg., and inflation is low".

The report added that monetary easing, along with continued deregulation, should lead to growth acceleration, with banks expected to outperform as credit conditions improve.

The Reserve Bank of India in December announced a 25 basis points reduction in the policy repo rate, bringing it down to 5.25 per cent. In the entire year 2025, the RBI announced a reduction of 125 bps.

India's GDP growth is expected to accelerate in 2026, driven by a combination of economic reforms and the cumulative impact of RBI rate cuts implemented so far. The report noted that there is room for more easing, as the repo rate minus core inflation remains well above its historical average.

While global monetary tailwinds are expected to be limited, domestic factors are likely to play a larger role in supporting growth.

According to the report, free trade agreements, especially with the European Union, and export-oriented foreign direct investment supported by the competitiveness of the Indian rupee, are expected to contribute positively.

Capital expenditure is projected to revive in the second half of FY27, adding further momentum to economic activity.

On the equity market outlook, the report said that valuation multiples at around 20.4 times are broadly in line with levels seen a year ago.

However, the chances of earnings upgrades are now brighter, and Nifty is expected to deliver returns of around 15 per cent from current levels. Small-cap stocks are also expected to catch up in performance, albeit with a lag.

The report further noted that 2026 is likely to be another year marked by reforms, deregulation and ease of doing business, supporting GDP acceleration.

Inflation risks are seen as minimal, as crude oil prices, which are well correlated with India's CPI inflation, are expected to remain around USD 65 and could be lower if Venezuela's crude infrastructure improves.

- ANI

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Reader Comments

P
Priya S
As a small business owner, easier credit is a lifeline. The 125 bps cut in 2025 was helpful, but another 50 bps in 2026 could really help with expansion plans. My only worry is inflation creeping back if oil prices don't stay low. Let's hope for the best.
R
Rohit P
Good analysis, but reports like these sometimes create unrealistic expectations. The RBI should act based on real-time data, not just historical averages. What if global conditions worsen? We need stability, not just aggressive cuts for the sake of it.
S
Sarah B
The focus on core inflation is key. If the gap is really that high, then yes, there is room. The projected 15% Nifty returns are very optimistic though. As an investor, I'll believe it when I see sustained earnings growth, not just rate cuts.
V
Vikram M
Finally some relief for fixed deposit holders is ending! Time to look at equity and mutual funds again. The report's point about small-caps catching up is interesting. Might be a good time for SIPs in mid and small-cap funds. 🚀
K
Karthik V
All this sounds positive, but will it translate to more jobs? Growth acceleration is meaningless if it's jobless growth. Hope the revival in capex in FY27 leads to significant hiring, especially for our engineering graduates.

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